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Tell Me It Ain't So -
on October 28, 2010
"Dethroning the King" reports how Budweiser (Anheuser-Busch - A-B), an American icon built up over 150 years to a 52% U.S. market-share, was lost to Brazil's InBev (headquartered in Belgium) in just 7 weeks. Thought to be 'too big to buy,' it instead proved 'too slow to act.' Company loyalists probably thought the Busch family could prevent a hostile takeover - however, they collectively only owned 4% of the stock, less than Warren Buffett (5%).
August Busch (A.B.) III, the former highly-respected A-B CEO, had stepped down in 2002. Known for his attention to detail, especially quality and brand image, he had over-focused on beating Miller in U.S. market share, largely ignoring foreign opportunities. (A-B did own part of both a Chinese [Tsingtao] and Mexican beer [Grupo Modelo] producer.) His son, August Busch IV, unfortunately was known for vitriolic disputes with his father, lacked the board's confidence, and often was AWOL from his leadership duties. The takeover danger had been spotted at least two years prior, but little was done in defense until too late - $500 million/year ($1 billion at another point - unclear which they really committed to) in savings (including 1,185 positions), identified the day InBev made its offer.
InBev was created by the 2004 combination of Brazil's Ambev and Belgium's Interbrew. The takeover cost InBev $70/share, in cash (A-B stock was in low $50s when InBev began pursuit; initial offer was $65/share), and created the world's largest beer company with about 200 brands. InBev changed its name to Anheuser-Busch InBev to maintain A-B's heritage and stifle opposition; it also decided to site its N.A. headquarters in St. Louis.
In late 2006, A. B. IV was about to become CEO, and wanted to ink a joint venture with InBev (make A-B the exclusive U.S. importer of InBev's European brands). This would be his first big initiative, and help cement his CEO spot. He succeeded, but failed to include the standstill clause A.B. III wanted that prevents partners from making moves toward an unsolicited takeover. A.B. III allowed it to proceed at the board level, nonetheless. The agreement allowed InBev people to see the excessive corporate overhead and where to make cuts.
A-B board members had numerous conflicts of interest - with Enterprise Rent-A-Car that it did extensive business with, with the head of one of its distributors, and interlocking board memberships (eg. Ed Whitacre at AT&T was on A-B board; A.B. III was on AT&T board and had been key in Whitacre getting a generous pay package). The board neglected to try to tie up banks that might be called on by InBev for funding, had destaggered board terms but failed to require that dismissing the entire board couldn't be accomplished without some sort of infraction, its poison pill provision had expired, and the Busch family had neglected to establish a two-tier shareholding structure that allowed them to maintain control without a majority of shares.
A-B management did explore one defense - buying the rest of Grupo Modelo to make themselves to large for InBev to aquire. Between Modelo demanding too much, and A.B. IIII being uninterested, this went nowhere.
Side Note: Ex-AT&T CEO Ed Whitacre who later became CEO of G.M. was also a member of the A-B board - their inept performance should have disqualified him from involvement with and leadership of G.M. after the restructuring.
InBev immediately implemented zero-based budgeting upon takeover, planned $1.5 billion in cost cuts, and now plans $2.25 billion in annual savings by 2011. The New CEO, Carlos Brito, stayed at the Holiday Inn after flying coach from New York. Payables days have been extended - sometimes from 30 to 120 days. First-class travel became coach class, stays at expensive hotels became much cheaper locales, cushy, private offices became a sea of community tables and tightly packed desks, luxurious furniture was auctioned off, free beer and tickets to Cardinals games and Busch Gardens ended for all employees, numerous sports events sponsorships ended, and Grant's Farm is now only open weekends. Improved water efficiency (30%) is planned. In October, 2009, plans were announced to sell Busch Entertainment (SeaWorld) and A-B's corporate jets; Busch's share of Tsingtao Brewery was also sold. More than 1,500 jobs have been cut - many in sales and marketing (U.S. volumes fell 4.8% first-half of 2010). It's still carrying over $40 billion in long-term debt.
Bottom-Line: Having a excellent product, market share, and brand value is not enough in the era of globalization. The result was a sad event for America.